Tata Steel pension deal in the spotlight over backtracking on mammoth cash promises

 
Oliver Gill
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Tata Steel committed to a series of cash payments as part of a pension recovery plan in 2014 (Source: Getty)

Tata Steel wriggled out of promises to stump up at least £125m in cash as part of its deal to jettison British Steel’s £15bn pension fund.

The Indian giant formally cut ties with British Steel’s retirement scheme in September, striking an accord with trustees and regulators to allow the fund to fall into the UK’s pension lifeboat.

Frank Field, the head of an influential parliamentary committee, committed to investigating if any financial promises were given up too lightly.

Pension trustees confirmed to City A.M. that the unusual deal – known as a Regulated Apportionment Agreement (RAA) – allowed Tata to renege on an overdue £60m payment from March 2017 and a further £65m cash injection due early next year.

The trustees said as part of the deal they also released a claim over a Dutch steel plant that could be worth over €500m (£440m).

In return, Tata’s UK arm was advanced £550m by its Indian parent to hand over to the Pension Protection Fund (PPF).

Some pension scheme members argue the £125m non-payment and the release of the Dutch plant charge means the wider Tata group was able to ditch the retirement scheme effectively without paying a penny.

The PPF and Pensions Regulator (TPR) say the deal struck was the best that could be achieved for the scheme’s 127,000 members to avoid a complete collapse.

Chair of the work and pensions select committee Field – who became synonymous with probing Sir Philip Green and the BHS pension failure – promised to find out whether British Steel pensioners received a raw deal.

He said:

Key to our examination of whether British Steel pensioners are being sold short is whether the RAA deal adequately compensates the scheme for the package of financial guarantees that it has agreed to relinquish. I will shortly be seeking further clarification on this point from the scheme trustees and Tata.

Tata Steel declined to comment.

Read more: Frank Field wants assurances over steelworker pensions in Tata Steel merger

Recovery plan

Facing a growing pension black hole in 2014, Tata committed to a recovery plan that included a series of cash payments to plug the gap. It also provided trustees with a 30 per cent charge over Tata’s mammoth Ijmuiden steel plant in the Netherlands. According to its latest accounts, the Dutch mill had net assets of €1.7bn.

But as the Tata’s commitment to steel plants across the UK wavered in 2016, the firm deferred a £60m recovery payment due in March 2017.

The British Steel pension scheme was seen as a key sticking point in Tata Steel’s planned merger of European operations with German steel behemoth Thyssenkrupp.

Tata, pension trustees, TPR and the PPF concluded protracted negotiations in September. They agreed to allow Tata to write off the outstanding and future pension cash injections and release of the charge over the Dutch plant.

Tata’s UK arm handed over £550m as well as a 33 per cent equity stake in British operations to the PPF. The equity stake is widely considered worthless at this time. Meanwhile, with dwindling cash reserves, Tata Steel UK was forced to go cap in hand to its Indian parent and be advanced the cash.

Significantly better

The PPF said the British Steel Pension Scheme (BSPS) “met the PPF’s published principles, including that an insolvency event of the scheme’s sponsoring employers, including Tata Steel UK, would otherwise be inevitable”.

PPF representatives added: “Our principles are also clear that the pension scheme must receive money or assets which are significantly better than it would have otherwise received through the insolvency of the employers – this includes the value of any guarantees being released or payments that might be called upon.”

A spokesperson for TPR said:

The RAA has brought greater certainty to around 130,000 scheme members, secured a significant cash contribution to the BSPS and minimised the impact on the Pension Protection Fund.

Read more: It's official: Tata Steel has offloaded its £15bn pension liability

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